Scotiabank and BMO Announce Higher Loan Growth While Intensifying Stress Test Scenarios

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TORONTO – BMO and Scotiabank both posted higher loan growth and earnings last quarter compared to a year ago and said business and consumer demand remains strong despite growing concerns about the ‘economy.

The two banks, the first to report their results for the second quarter which ended in late April, say that while their results were robust, they have also stepped up their internal stress test scenarios as central banks raise interest rates. interest in fighting inflation.

“Given the macro environment, we are running stress tests that would have tougher inputs today than maybe a year ago,” Scotiabank Chief Executive Brian Porter said. , during a conference call on Wednesday.

There is growing concern in the rising interest rate environment that central banks could overstep and push the economy into a recession, but banks say they have seen few signs of such a case emerging so far.

Many businesses are still investing to close supply chain gaps, increase onshore production and boost productivity, said David Casper, who leads North American commercial banking at BMO.

“There’s certainly more uncertainty given some of the ongoing issues that we’re all experiencing, supply chain, inflation, but the demand for our customers’ products still exceeds the supply. So they’re still growing, they try to keep up.

BMO reported overall loan growth of 9% for the quarter compared to a year ago, with slightly higher gains in commercial loans, while Scotiabank posted a 13% gain, driven in part by a 16% gain in Canadian mortgages.

This activity helped boost net income in BMO’s Canadian personal and commercial division by 21%, while Scotiabank jumped 27% in its Canadian division.

Rising mortgage rates have drawn attention to the heavy indebtedness of Canadian households, but banks say their loan books remain strong as consumers’ financial health has improved overall during the pandemic.

“We are very confident in the health of the Canadian consumer at this point,” said Phil Thomas, chief risk officer of Scotiabank.

The bank noted, however, that the Canadian housing market has already begun to slow as rates begin to climb, and does not expect the same level of mortgage activity for the rest of the year.

“You’ve seen some slowdown in mortgage growth…there are markets that have obviously risen more in favor of buyers, let’s say, on an easing basis,” said Dan Rees, head of mortgages. Canadian banking operations at Scotiabank.

He said the bank saw a decline of about 2.5% in mortgage growth from the previous quarter, but still expects to see year-over-year growth for the remaining quarters. at a high number.

Banks are also not immune to inflationary pressures, with Scotiabank spending up 3% year-on-year, including an 8% increase in Canadian division spending, and BMO reporting adjusted spending up 2%, including an 11% increase. in Canada both by investing in technology and increasing wages.

Both banks say they expect spending growth to stay in the low single digits, but BMO has revised its estimate up to 2.5% for the year from 1.5%.

And banks should benefit from the rate hike intended to fight inflation, with both seeing slightly higher net interest rate margins compared to the previous quarter.

Rising rates significantly reduced stock valuations and trading activity, which helped to lower net income for BMO’s capital markets division by 20% from a year earlier, while the Bank Scotia said revenue from its global banking and markets division was down six per cent from a year earlier.

The decline in markets, however, was more than offset by gains in other divisions, with BMO reporting adjusted net profit, which excludes profit related to its pending Bank of the West, of $2.19 billion, versus $2.58 billion in the same quarter a year earlier.

Scotiabank reported net income of $2.75 billion, up from $2.46 billion in the same quarter last year.

BMO said it will now pay a quarterly dividend of $1.39 per share, up 6 cents from $1.33 per share, while Scotiabank raised its quarterly dividend from 3 cents to 1, $03 per share.

Scotiabank analyst Meny Grauman said in a note that while the quarter’s results are retrospective in nature, it’s encouraging to see no signs of a slowdown in BMO’s earnings.

“The good news from these results is that there are no signs of a recession in the numbers.”

This report from The Canadian Press was first published on May 25, 2022.

Companies in this story: (TSX: BNS; TSX: BMO)

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